A Comparative Analysis of Shareholder Derivative Litigations in Taiwan: Rethinking of Law, Implementation, and Suggestion

Since the 1990s, Taiwan’s capital market has been tarnished by several corporate scandals, many involving managerial embezzlements and false/misleading financial reports. One of the main reasons why these scandals frequently occurred is the lack of an effective system of checks-and-balances or good corporate governance mechanisms within Taiwan’s companies. To deal with this deficiency for corporate governance, there have been many discussions in Taiwan’s academia of corporate laws about how to reform the provisions of Taiwan Company Act, especially for a better internal monitoring mechanism. In fact, in last two decades, Taiwan has taken a series of legal reforms as an attempt to build a system for better corporate governance. For instance, in 2002 Taiwan for the first time introduced independent directors in hopes that U.S. experience in this regard can be a good model for Taiwan, and in 2006 Taiwan Securities and Exchange Act added new amendments making independent directors statutory and legally different from non-independent directors. However, there are still many issues or topics that need reform, but they draw little attention from Taiwan policymakers. The institution of shareholder derivative litigation, which was introduced into the Taiwan Company Act in 1966, is one such example. Due to strict pre-suit requirements, very few cases brought in practice, so two amendments were enacted to lower the requirements in hopes of activating it. However, the amendments have made no real difference: fewer than ten cases have been brought since the latest amendment in 2001. Thus, this institution has almost been extinct under the Taiwan Company Act. This dissertation argues that Taiwan’s current provisions regarding the shareholder derivative litigation are ill-designed and need reform soon for better corporate governance. The dissertation offers a feasible proposal for future reform, along with comparative analyses of derivative suits in the U.S., other East Asian countries and Taiwan. An important goal of my research will be how to make this institution practicable in a more effective manner in Taiwan